Applebee’s Neighborhood Grill Bar may serve old-fashioned food, but its approach to strategy is a model for the future.

By Jill Rosenfeld5 minute Read

From its all-American menu, to its cheery waitstaff, to its walls decorated with local memorabilia, an Applebee’s Neighborhood Grill & Bar looks about as radical as a barbecued-chicken sandwich. But that just proves the old proverb: Looks can be deceiving.

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We’re all familiar with the rules for success in Silicon Valley, Seattle, and other outposts of the dotcom revolution: If you want to win big, you have to think differently. But where is it written that only Web startups can play by new rules? According to Applebee’s, the answer is “nowhere.” The restaurant chain plays by its own rules, applying cutting-edge ideas to an old-school industry.

Consider its formula for growth — which it calls “conscious cannibalization.” Rather than carefully space out its restaurants so that the sales of one don’t eat into the sales of another, Applebee’s floods a territory with stores in order to gain brand recognition and market dominance. In the Kansas City area (where Applebee’s is headquartered), for example, the company has 23 restaurants; Chili’s, its biggest competitor in terms of market presence, has just 4 units. For a long time, most people viewed this strategy as a kind of heresy. The company had a difficult time convincing Wall Street that it made sense to violate the first commandment of retail: Thou shalt grow same-store sales. But, heresy or no, the cannibalization strategy paid off in a big way. “We came out of nowhere as a dominant player in the industry,” says Lloyd Hill, 56, president and CEO.

He’s not exaggerating. Back in 1988, when franchisees Abe Gustin and John Hamra bought the chain from W.R. Grace & Co., Applebee’s consisted of 54 stores. Now the company has nearly 1,200 restaurants worldwide. In 1999 alone, more than 240 million visitors passed through the doors of an Applebee’s, pushing systemwide revenues for that year over the $2 billion mark.

The Applebee’s strategy has challenged conventional wisdom in more ways than one. For example, while most chains were building bigger and bigger restaurants to handle ever-growing crowds, Applebee’s designed a smaller space for its restaurants, one that was cheaper and faster to build — and easier to fill on slow days. The basic impulse behind Applebee’s: Faster is better. Get to a neighborhood before the competition does. And keep things moving by providing customers with a convenient experience.

To be sure, there’s more to providing great service than just speed (even at a fast-food restaurant). When you arrive at Applebee’s, a host or hostess opens the front door and greets you with a smile. Pennants and jerseys from local high schools decorate the walls. Managers introduce themselves. If your date hasn’t yet arrived, you’re offered a seat at the bar — a central feature of every restaurant. “Our restaurants are about more than food,” says Hill. “They’re about inclusiveness, value, comfort, trust, and relationships.”

Of course, genuinely friendly service requires a genuinely enthusiastic staff. Job applicants take a written test that measures their skills and personality, and, if they get the job, they start getting feedback as soon as they begin working. “Imagine a 20-year-old kid who’s never gotten developmental feedback at work before,” says Lou Kaucic, who is known as the company’s “chief people officer.” “That kid will welcome feedback and think, ‘Wow, Applebee’s really cares about me. Maybe this job actually has more to offer than just six bucks an hour.'”

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Fast companies aren’t just fast to market; they’re also fast to get feedback from customers. At Applebee’s, randomly selected guests receive a coupon that they can redeem by calling a toll-free number and offering input on a series of service-related topics: speed of service, taste of the food, cleanliness of the restrooms, and so on. The data help the company to keep track of big-picture trends and to fix specific problems fast. How fast? If, for instance, a customer rates a particular Applebee’s as “very poor,” a live operator will come on the line and offer to connect the customer either with a customer-service rep or with the manager of that restaurant. “Within moments of your call, someone is on the phone trying to make things right,” says Hill, who tells managers to do whatever it takes to regain a guest’s goodwill. (Managers have been known to give away theater tickets or to send flowers.) “When you please a guest in that way, that guest becomes more loyal than a guest who’s never had a problem.”

Applebee’s also fast-tracks employee feedback with its “Hey, Lloyd” program, a confidential method of sending a note straight to the top. “It’s a way for me to find out whether our culture is taking hold in a given restaurant, city, or region, and to learn if the leadership there needs to be developed,” says Hill. “The culture of an organization really drives its performance — particularly in the hospitality industry. In our business, you’re only as good as the last guest who came through the door thinks you are.”

Contact Lou Kaucic by email (lakaucic@applebees.com), or learn more about Applebee’s on the Web (www.applebees.com).

Sidebar: Fast Reactions

When you’re a top executive at a fast-growing company like Applebee’s, it’s easy to lose touch with what really matters: your product, your staff, and your customers. And that’s why the company has developed several techniques to keep its feet on the ground.

One such technique is the Appleseed Initiative. The company has designated two restaurants in the Kansas City area policy-testing laboratories. “Conventional ways of doing things don’t necessarily work anymore,” says Lou Kaucic, senior VP of human resources, who oversees the initiative. “Appleseed helps me understand what works and what doesn’t.” Employees from the two Appleseed restaurants periodically meet with Kaucic to give him feedback and to brainstorm ideas.

Meanwhile, about once a year, all 300 people in the corporate office work a shift at an Applebee’s in the Kansas City area. Last year, CEO Lloyd Hill worked as a busboy. What did he learn? “The water is hot; your hands get dry; and if you don’t hold onto the sink’s spray hose when you’re washing dishes, it will flop all over the place when you turn on the water.”

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Hill came away with another insight: “I learned that every person on our team is very important. If we don’t have great dishwashers, then we can’t serve you your meal — and then having the best food, the lowest prices, and the friendliest staff means nothing.”

A version of this article appeared in the April 2000 issue of Fast Company magazine.